Financial Statement Analysis

Short Term Ratios

Current ratio
YEARS %age %age
change
2004 2 100

2005 1.39 69.5

2006 1.32 66

2007 1.65 82.5

2008 1.27 63.5

Current ratio tells us that how much asset we have in our

company which can meet our current liabilities.

Over the 5 years period the ration has declined below 1 this
is not a good sign for the organization as the matter could
become worse when it comes in meeting short term
liabilities

By Salman Ali Haider

Financial Statement Analysis

Quick ratio
YEARS %age %age
change
2004 1.58 100

2005 1.06 67.08861

2006 0.87 55.06329

2007 1.17 74.05063

2008 0.79 50

Quick ratio measures the liquidity situation excluding

inventories.

This ratio also decreased over five year period. Indicating

the management is not working properly to maintain
sufficient current assets to maintain current liabilities.

By Salman Ali Haider

Financial Statement Analysis

Cash ratio
YEARS %age %age
change
2004 1.17 100

2005 0.71 60.68376

2006 0.49 41.88034

2007 0.79 67.52137

2008 0.37 31.62393

Cash ratio tells us that how much we have immediate cash

or cash equallnt to meet our current liabilities.

This ratio had also decreased our period of five year. Just
like quick and current ratio. So management need to
consider this matter and need to take corrective measure to
improve this ratio and in short term find ways and means to
best meet their current liabilities.

By Salman Ali Haider

Financial Statement Analysis

Avg. collection period

YEARS Days %age
change
2004 61 100

2005 62.04 100.3883

2006 61.56 99.61165

2007 62.9 101.7799

2008 61 100

The average collection period shows the number of days

after which we convert all our receivables to cash.

These numbers of days has been constant. This is an

achievement for the organization. Cause company holding
expenses along with obsolesce expense would decrease.

By Salman Ali Haider

Financial Statement Analysis

Turnover of inventory
YEARS Times %age
change
2004 1.86 100

2005 2.22 119.3548

2006 2.29 123.1183

2007 2.02 108.6022

2008 2.03 109.1398

By Salman Ali Haider

Financial Statement Analysis

Age of inventory
YEARS Days %age
change
2004 193.3 100

2005 162.3 83.96275

2006 157.3 81.3761

2007 178.01 92.09002

2008 176.6 91.36058

It is the period after which inventory is sold.

This period has to decrease to 176. Over the period of five

years this shows the increase in company sales and
reputation of the company. This change is also because of
the decrease in profit margin ratio. Which means that
company has decrease its profit on per sale of unit.

By Salman Ali Haider

Financial Statement Analysis

Operating cycle
YEARS Days %age
change
2004 255.1 100

2005 224.4 87.9655

2006 218.79 85.76637

2007 240.9 94.43356

2008 237.6 93.13995

The number of days after which company purchases raw

material, sell goods and recover its collectables.

The operating cycle has decreased only because of

decrease in average inventory period. This is good for
company reputation cause as operating cycle decreases
organisation would have cash more quickly to run its
operations.

By Salman Ali Haider

Financial Statement Analysis

Turnover of working capital

YEARS Times %age
change
2004 0.7 100

2005 0.73 104.2857

2006 0.7 100

2007 0.65 92.85714

2008 0.67 95.71429

Avg. payment period

YEARS Days %age
change
2004 100 100

By Salman Ali Haider

Financial Statement Analysis

2005 85.1 85.1

2006 72.43 72.43

2007 83.3 83.3

2008 98 98

The number of days after which the company pay it’s

payable.

The number of days has increased this shows that company

is trying to utilize money efficiently. As it is in the best
interest of the company to retain money for as long as it
takes cause company could invest it in short term
investment.

By Salman Ali Haider

Financial Statement Analysis

Cash cycle
YEARS Days %age
change
2004 155.5 100

2005 139.3 89.58199

2006 146.4 94.14791

2007 157.6 101.3505

2008 139.6 89.77492

It is the period for which we have cash in our pocket. This

cash is after collecting and paying activities.

This period had remained constant due to decrease in

average inventory period and increase in average payment
period. So its good.

By Salman Ali Haider

Financial Statement Analysis

Long Term Ratios

T.I.E.R (Time interest Earned ratio)

YEARS %age %age
change
2004 22.2 100

2005 23.13 104.1892

2006 29.88 134.5946

2007 28.61 128.8739

2008 30.9 139.1892

Through his ratio we calculate that how much times we

have earned than the interest we have paid.

By Salman Ali Haider

Financial Statement Analysis

This ratio has increased over five year time. This shows
efficiency of the organisation’s operations.

Debt to equity
YEARS %age %age
change
2004 0.178 100

2005 0.16 89.88764

2006 0.154 86.51685

2007 0.123 69.10112

2008 0.145 81.46067

Here we compare debt especially long-term debt with total

assets.

This ratio has decreased because of increase in total assets

and this ratio must remain as low as it takes.

By Salman Ali Haider

Financial Statement Analysis

Debt to Tangible net Worth

YEARS %age %age
change
2004 0.21 100

2005 0.225 107.1429

2006 0.244 116.1905

2007 0.186 88.57143

2008 0.214 101.9048

This ratio compares long term debt with assets excluding

factitious assets. Thus showing real worth of assets of the
organisation.

By Salman Ali Haider

Financial Statement Analysis

This ratio has remained constant over the period of five

accounting periods. Due to investment in fixed asset as
business growing.

Debt/Equity ratio
YEARS %age %age
change
2004 0.676 100

2005 0.741 109.6154

2006 0.647 95.71006

2007 0.528 78.10651

2008 0.552 81.6568

This ratio tells us total debt compared to equity. This equity

is asset – liabilities.

By Salman Ali Haider

Financial Statement Analysis

This ratio has decreased. Due to greater increase in equity

than debt.

Gearing ratio
YEARS %age %age
change
2004 0.229 100

2005 0.218 95.19651

2006 0.202 88.20961

2007 0.16 69.869

2008 0.145 63.31878

This ratio is calculated with respect to the scenario of

Pakistan.

By Salman Ali Haider

Financial Statement Analysis

This ratio compares liability with sum of total equity and

long term liability. This ratio has decreased. Due to increase
in equity of the organisation.

Profitability ratios

Net Profit margin

YEARS %age %age
change
2004 0.23 100

2005 0.21 91.30435

2006 0.22 95.65217

2007 0.17 73.91304

2008 0.21 91.30435

By Salman Ali Haider

Financial Statement Analysis

This is the Comparing of net income to net sales is called

net profit margin.

This has decreased showing that company is trying to give

access to more people by decreasing profit earned. This
also shows change in company change in policy.

Total asset turnover

YEARS Times %age
change
2004 0.47 100

2005 0.56 119.1489

2006 0.57 121.2766

2007 0.53 112.766

2008 0.54 114.8936

By Salman Ali Haider

Financial Statement Analysis

It has increased over 5 years showing that assets are used

more efficiently and effectively as number of products
produced and sold had increased.

Du Pont Return on asset ( Return on Asset )

YEARS %age %age
change
2004 0.124 100

2005 0.123 99.19355

2006 0.126 101.6129

2007 0.094 75.80645

2008 0.136 104.54839

By Salman Ali Haider

Financial Statement Analysis

Return has increased due to more increase in asset turn-

over than net profit margin.

Operating asset Turnover

YEARS Times %age
change
2004 3.32 100

2005 3.57 107.5301

2006 3.29 99.09639

2007 3.01 90.66265

2008 3.16 95.18072

By Salman Ali Haider

Financial Statement Analysis

Return on Equity
YEARS %age %age
change
2004 0.209 100

2005 0.206 98.56459

2006 0.193 92.3445

2007 0.137 65.55024

2008 0.178 85.16746

By Salman Ali Haider

Financial Statement Analysis

Return or equity has decreased due to companies increased

in equity over five years period.

Summery:
Analyzing companies performance over five year. Had
shown fluctuation in the calculation of ratios and to make
sure that it is easy to understand we had made an
assumption that if the ratio is showing increasing trend then
ratio had been considered as improving. The main causes
for fluctuation are increase in assets, sales and profit of the
company. So we had taken comparative increases and
decreases in each item and analyzed that the company is
growing at a amazing rate but it need to considered many
things like current, quick and cash ratios must be greater
than 2 as this ratio is taken into consideration by all the
investor. Rest of the ratios are good the way they must be
so from me side thumbs up.

By Salman Ali Haider